With the government’s “Innovation Policy”, we finally have a government that recognises the importance of technology innovation to our future prosperity. If you have not done so, you can check it out here: www.innovation.gov.au.

But has the government’s Innovation Policy missed its mark?

In reading the government’s innovation policy and although it made some mention of entrepreneurship, it is clear that it is skewed more towards technological innovation. But is this too narrow? Should the government have focused more on “entrepreneurial innovation”?

The policy distinction between “technological innovation” and “entrepreneurial innovation” is super important because it will determine the government’s priorities, programs and spending.

What is Entrepreneurship?

“Entrepreneurship is the means of organising and managing any enterprise, especially a business, usually with considerable initiative and risk. The word entrepreneur originates from the French word, entreprendre, which means “to undertake.” In a business context, it means to start a business.”

The important operating word in this definition is “any”. This means entrepreneurship applies to any enterprise or business. Technology based business is but one type of enterprise.

What Is Innovation?

“Innovation is a new idea, or more-effective device or process. Innovation can be viewed as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. This is accomplished through more-effective products, processes, services, technologies or business models.”

As this definition illustrates, innovation has a wider application. Innovation can be in new products, processes, services and business models. Technology is but one application.

As illustrated in these definitions, technology is only but one area of entrepreneurship and innovation. The government’s policy however is narrower as it is focused primarily on technology.

The Ideas Boom Will Create Jobs

The main justification for the government’s innovation policy is that it will make Australia more globally competitive and cement job creation in the future.

But is this really the case? Would technological innovation really create the jobs that the government claims it would?

New technology is generally introduced to increase efficiency and productivity and these days, to “DISRUPT” the business model of established monopolies. However, efficiency generally means replacing people with machines because they can work 24/7, produce more, require minimum maintenance and never complain!

“DISRUPT” or “DISRUPTION” means challenging the business model of established monopolies with a new technology which in turn erodes the revenue base of these monopolies resulting in job redundancies.

A lot of jobs were lost from Australia’s car manufacturing industry (when we had one) when robotic automation was introduced to increase efficiency (less cost) and productivity (more cars). And as it turned out, even automation could not save the car industry.

Google and now Facebook have basically decimated the business model of traditional media companies and local search directories. Note the wholesale redundancies that are occurring at Australia’s major newspapers like the Sydney Morning Herald, the Australian and the Yellow Pages.

A more recent example is of course the introduction of the ride sharing app Uber. Uber’s business model challenges the business monopoly of the taxi industry. Although there are now more drivers and cars on the road working for Uber, it has had a major impact on the taxi industry. The value of taxi plates have depreciated considerably in the past twelve months. Although great for consumers, the long term impact on the taxi industry is yet to fully unfold. But if the following article is any indication, it is going to be ugly. “Uber Takes Big Bite Out Of Taxi Licence Plate Valuations” and “Taxi Drivers Protest Outside Premier’s Electorate Office“.

Airbnb the accommodation sharing app is relatively new. It is going to be interesting to see how it impacts the accommodation industry. Judging by calls from accommodation establishments to regulate Airbnb’s operators, they are getting worried.

With technological innovation, new jobs will be created but existing jobs will also be lost. The questions is, will there be enough jobs created to replace those that are going to be lost and will the set of skills that are needed for the new jobs match the skills of those who are going to be displaced?

The research report further “shows that in some parts of rural and regional Australia in particular there is a high likelihood of job losses being over 60 per cent”.

The report acknowledges that we need to create a culture of innovation to meet the scope and breadth of rapid global technological innovation if we are going to continue to compete globally. At the same time, it also points out that Australia has to reconsider how we deal with “reskilling workers as particular fields of employment disappear”.

In the same vein, Caroline Fairchild writing for the Milken Institute Global Conference shared this very critical point “Some 80% of Americans expect that their jobs will remain untouched by artificial intelligence. A panel at Milken Global of leading Artificial Intelligence experts proved that some 80% of Americans are wrong.”

Although the government’s new Innovation policy is laudable, I suggest that it would be more beneficial to the wider Australian economy if the focus was on “entrepreneurship”. If you recall from the above definition, entrepreneurship refers to “any” enterprise and in which “technology” is but one area.

This distinction is super important because government policy dictates what initiatives, programs and in particular funding it will implement.

Focusing on entrepreneurship provides a wider scope for creating more jobs across the Australian economy. To put this into perspective and as all businesses start small, here are some facts about small business in Australia. The Australian Bureau of Statistics defines small business as enterprises that employ 1-20 people.

At the end of June 2014, 4.7 million Australians were employed in small businesses.

Small business employment grew by 146,000 or 3.2 per cent in the 12 months to 30 June 2014.

Small businesses accounted for the largest share of total employment in Australia (by firm size) at 44.0 per cent at the end of June 2014—this compares with a 24.3 per cent share for medium sized businesses and 31.7 per cent share for large businesses.

The contribution of small business to total employment was higher in 2009–10 at 47.0 per cent.

The number of owner managers of incorporated enterprises (OMIEs) who operate small businesses fell by 109,000 or 27.4 per cent between May 2006 and May 2012. Subsequently their number increased by 29,000 or 10.0 per cent between May 2012 and May 2014.

For the Number of Small Business by Industry Sector as at June 2013, here are even more interesting facts:

Construction had the most businesses operating in Australia – 323,676 businesses.

Source: ABS Cat. No. 8165.0, Businesses by Main State by Industry Class by Employment Size Ranges, June 2011, June 2012 & June 2013 (released 23 June 2014)

As can be seen from the above, the majority of small businesses lie across a number of industry sectors from construction, professional and technical services, real estate, financial, retail and transportation.

A policy therefore that is focused on entrepreneurship makes sense as it will provide innovative businesses across all industries the opportunity to tap into government programs and funding. In turn, this will help stimulate more economic activity and create wider employment opportunities across cities and rural areas in Australia, both now and the future.

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